Effects of Culture on International Business

Effects of Culture on International Business INTRODUCTION The purpose of this essay is to demonstrate the concept of culture in relation to international business. More specifically, is to dig deep and clarify the impact of culture on international businesses. According to Copland and Griggs (1985, p.43) there is no culture right or wrong, just differences we must make value judgments as to whether or not cultural behaviour is good or bad, better or worse. It is wrong to assume that people in different cultures think, feel and act in the same way. In international business dealings, ignorance of cultural difference is not just unfortunate, it is bad business (Arwind, 1989, p. 25). Sensitivity to cultural difference is crucial to successful international business operations. Ignorance of cultural differences could end in disastrous business blunders. A discussion on culture should first begin with a definition. In a simple term, culture is how things are done around here (Mullins, 2005). On the other hand, (Hofstede 1980) referred to culture as the software of the mind. In other words, it is the social programming that runs the way we think, act and perceive ourselves and others. However, culture is an extremely broad concept and very difficult to define. At present there are estimated to be over 200 different definitions of culture. There is no general agreement with regard to the definition of culture. To some, culture refers to the distinctive way of life of a particular group of people (Herskovitz, 1952, p. 17) or a complete design for living (Kluchholm, 1951, p. 86). Others refer to culture as a pattern of behavior transmitted to members of a group from previous generations of the same group (Hall, 1977, pp. 16-17). Culture is not simply a product of conditioning (Grosse and Kujawa, 1992, p. 322) acquired, learned or transmi tted from one generation to another. Culture also shapes peoples values, attitudes, beliefs and behavioral patterns (Terpestra and David, 1985). It is therefore crucial for international business men and women to understand fully not only how people in different cultures behave but why they behave in the way they do. GEERT HOFSTEDE AND HIS CULTURAL DIMENSIONS One of the most influential pieces of research in relation to national cultures is the work of the Dutch researcher and business consultant Geert Hofstede (1980 2001). He analysed survey data from 116,000 employees of IBM in more than 40 different countries. He initially identified four, later five basic dimensions to express differences between national cultures: 1. Power distance this is the extent to which inequalities among people are seen as normal. This dimension stretches from equal relations being seen as normal to wide inequalities being viewed as normal. Examples of countries with high power distance scores are the Philippines, Singapore, France and Greece. In contrast, countries with low power distance scores such as Britain, Sweden and New Zealand favour a more democratic style of management and flatter organisational structures. 2. Uncertainty avoidance this refers to the degree to which societies feel threatened by ambiguous situations and the extent to which they try to avoid uncertainty situations. In countries with high uncertainty avoidance, such as France, organisations adopt strong bureaucracies and career stability and generally discourage risk taking activities. Countries such as Britain and Norway which exhibit low uncertainty avoidance will adopt more flexible structures and encourage more diverse view. 3. Individualism/collectivism in an individualist culture people tend to look after their own interests and those of their immediate family whereas in collectivist culture there is a tighter social framework in which each person respect the group to which he or she belongs. For instance, in the USA, people are expected to take care of themselves and their immediate family only. In collectivist societies such as Japan, however, people are integrated into strong, cohesive groups which throughout peoples lifetimes continue to protect them in exchange for unquestioning loyalty. For example, Toyota is Japanese, General Motors American origin companies. According to Hofestede we can take Toyota in the more collectivist side of the organisational culture whereas General Motors is more on individualistic side. In Toyota being in a team is more important. However, in General Motors it is more important that individual contribute to the organisation. 4. Masculinity/femininity In a masculine culture the dominant values are said to be ambition, assertiveness, performance and the acquisition of money and material objects whereas in a feminine culture values such as the quality of life, maintaining personal relationships and care for the weak and the environment are emphasized. For example, the most masculine countries in Hofstedes framework are Japan and Austria. In contrast, the Scandinavian countries fall into the feminine category with more emphasis on work-life balance. 5. Time orientation Bond (1988) and his colleagues called this Confucian dynamism. Hofstede relabelled it long term versus short term orientation. In countries exhibiting a long term orientation, there is a focus on the future and saving and persistence are valued. Companies in Japan are examples of a long term oriented society, have traditionally taken a longer term view of investment. In contrast to companies in Western economies, it is not necessary to show profits year by year but rather progress toward a longer term goal. Other comparable studies of national values that compete with Hofstedes work-related values framework include: Kluckhohn and Strodtbeck (1961), Hall and Hall (1990), Schwartz (1992), Trompenaars and Hampden-Turner (1998) and Javidan et al (2006). According to Geert Hofstede Analysis. [2008, online] For those who work in international business, it is sometimes amazing how different people in other cultures behave. We tend to have human instincts that deep inside all people are the same but actually they are not. In other words, if we go into another country and make decisions based on how we operate in our own home country, the chances are we will make some very bad decisions. Understanding Hofstede module helps international business men and women analyse the cultures in countries in which they will do business. According to Ferraro, G (1998, p. 63) Hofstede research gives us insights into other cultures so that we can be more effective when interacting with people in other countries . If understood and applied properly, this information should reduce our level of frustration, anxiety and concern. But most important, Hofstede will give us the edge of understanding which translates to more successful results. The Hofstede Model of Cultural Dimensions can be of great use when it comes to analysing a countrys culture. There are however a few things one has to keep in mind. McSweeny (2002), for instance, argues that Hofstede study suffers from a number of important weaknesses, such as the assumption of cultural homogeneity within a country and the difficulty of generalising for a national culture on the basis of sometimes quite small samples of one occupational group in one company. Personally, I believe the averages of a country do not relate to individuals of that country. Even though this model has proven to be quite often correct when applied to the general population, one must be aware that not all individuals or even regions with subcultures fit into the design. It is to be used as a guide to understanding the difference in culture between countries, not as law set in stone. As always, there are exceptions to the rule. Secondly, how accurate is the data? The data has been collected through questionnaires, which have their own limitations. Not only that, but in some cultures the context of the question asked is as important as its content. Especially in group-oriented cultures, individuals might tend to answer questions as if they were addressed to the group he/she belongs to. While on the other hand in the United States, which is an individualistic culture, the answers will most likely be answered and perceived through the eyes of that individual. And lastly, is the data up to date? How much does the culture of a country change over time, either by internal or external influences? THE IMPACT OF CULTURE THROUGHOUT INTERNATIONAL BUSINESSES When Disney decided to open a Disneyland in Europe, it seems the company failed to do its cultural homework on everything from French business negotiating styles to employee flexibility and dress habits to consumer spending patterns and eating preferences. The company had a system that worked in the United States and Japan, two very diverse cultures and evidently saw no good reason to change it to adopt to European sensibility. According to Roman Dicia a French editor day one began with a nightmare. The French people, who tend to wear their cultural hearts on their sleeves howled about Yankee cultural imperialism when Disney managed to buy 1,950 hectares of prime farmland. The farmers whose families had worked the land for centuries were bounced. French newspaper railed at the American invaders in a very public display of anger and insult. Before they started anything, the company had managed to alienate the community, partly because it had underestimated the attachment to the land of one segment of French society. Next, Disney offended French sensibility when it used lawyers rather than its executives to negotiate constriction and other contracts for EuroDiseny. It was simply not a French thing to do. In France, lawyers are considered a negotiating tool of absolute last resort. The use of lawyers early on in the progress was a sign of mistrust and backhand rejection of French ways. On the other hand and in terms of operations, Disney ignorance of European culture and French working norms caused more problems. The company, which prides itself on the squeaky clean all American look of its employees, instituted a strict dress code for its employees, barring facial hair, dictating a maximum length for fingernails and limiting the size of hooped earrings. The staff and its unions rebelled at this perceived attack on everyday French fashion. In addition, Disney got several other important details wrong. For example, lunch times inside EuroDisney bordered in disaster. While Americans visiting Disneyland prefer to eat at irregular intervals, as they wonder the park confines, Europeans are used to sit down at lunchtimes. As a result the parks restaurants became very busy at the lunch hour as everyone tried to eat once and were empty the rest of the day. Customers complained of long lunch time lines and the pressure to eat quickly. The staff complained of being overworked at lunch time and underworked during the rest of their shifts. To top it off, Disney, in keeping with the family friendly theme, barred the serving of alcohol, perhaps the ultimate insult in a country where the consumption of wine at mealtimes is a birthright. It was so unlike Disney to get so many details so wrong says one US based securities analyst who follows the company. Maybe its not such a small world after all. The company cultural insensitivities cost it a lot of money and goodwill. I think it is a reminder to any company or individual doing business in another country, the devil is often in the cultural details. They can make or break you. But for Disney at least, alls well that ends well. After making some significant cultural adjustment, EuroDisney is no longer the economic drain it once was on company coffers. Another great example is McDonald. McDonalds worldwide is well known for the high degree of respect to the local culture. However, years ago when McDonald restaurants entered into India, McDonald faced some problems in relation to the transformation of the menus according to the Indians culture. For example, for thousands of year, Indias Hindu culture revered the cow. Hindu scriptures state that the cow is gift of the God to the human race. The cow represents the divine mother that sustains all human beings. McDonalds is the worlds largest user of beef. So how can a company whose fortunes are built on beef enter a country where the consumption of beef is a grave sin? Use pork instead? However there is a large population in India who are Muslim and Muslims do not eat pork. McDonalds responded to this cultural food dilemma by creating an Indian version of its Big Mac The Maharaja Mac which is made from mutton. Other additions to the menu conform to local sensibilities such as the McAloo Tikki Burger which is made from chicken. In fact, India is the first country in the world where McDonalds does not offer any beef or pork items. All foods are strictly separated into vegetarian and nonvegetarian lines to conform with preferences in a country where many Hindus are vegetarian. So much so that the mayonnaise and the soft serve are also 100% vegetarian and only vegetable oil is used as a cooking medium. It may seem silly for McDonalds to be taking away the burger for which is became famous for but in such a multinational company, they had to do what was best for business. Other comparable examples include: the non Kosher KFCs in Israel, what is acceptable and not acceptable in the Jewish religious book and also Pizza Hut in Saudi Arabia, Halal and non Halal meat. Also a great case can be IKEA. IKEA had a very successful culture that facilitated its expansion into various countries. However, this view did not turn out to be successful in the USA where in they ran into a few problems like different tastes in furniture and cultural change. In addition, more competition and changes in Swedish laws on furniture made expansion into the USA very difficult. Longer shipping periods added to the expansion misery and IKEA had to adopt a more adapted culture to enhance sales in the USA. The cultural problems that IKEA faced in USA were, for examples; the use of the Swedish flag outside IKEA was very irritating to some Americans. Different tastes and the Swedish style of the furniture, this refers for example to preferences of some designs, different size in beds that meant the US consumers were not used in European ones and some found the IKEA beds just too small and the meaning of colors, etc. Also they were not much happy with the cash and carry service and they wanted better and faster delivery at home and do not enjoy queuing. Not every American is used to do shopping outside cities or can do, like Chinese and also, in America more media advertisements were needed. The word of mouth was not much successful as in Europe. They also had the problem with the different management style. For example, Swedish managers are expected to be ambassadors and explain the IKEA way to non-Swedish co-workers in overseas operations. This has proved relatively easy in the Netherlands but not so in Germany, France and the United States. Grol et al.s (1998) research on problems encountered by IKEAs management of people in Germany, France and the United States, although producing some national stereotypes, indicates that in Germany there were problems of addressing managers using first name and understanding managers authority; doing exactly as the manager asks and not using ones own initiative. In France there were problems of informality being seen as a sign of weakness or indecisiveness, meaning that employees could do what they want. In the United States people felt uncomfortable with the Swedish lack of showing emotion; avoiding conflict and not setting themselves apart by avoiding self promotion. There were also pr oblems with instructions by managers not being spelt out and the longer term Swedish management approach of explaining why things are done: this is seen as indecision. There was a perception that individual achievement is not rewarded in view of a Swedish avoidance of discrimination in pay increase. As a consequence they lost key American managers because of slow progression and not being sure of their role or future in the organisation. IKEA had to accept a different culture and at the same time keep its own. Otherwise it will either not succeed on the US market or it will not be IKEA anymore. IKEA has met cultural problems, especially in the US, due to a lack of information about these cultural differences. Indeed IKEA did not conduct any market research before entering new market and did not use local expertise. However, the expansion abroad of IKEA has eventually been possible even if they met some difficulties along the way. This can be attributing to the fact that IKEA concept is very effective but also because the company have made special efforts to adapt its products and services to various cultural environments. We dont spend much money or time on studies. We use our eyes and go out and look, and say it will probably do quite well here. Then we may adapt, but quite often we stick to our opinions, says Mr. Anders Moberg, IKEAs chief executive. Therefore IKEA changed the rules of the retailing industry. This was considered quite dangerous because IKEAs expanded its stores internationally without having data and information about the new country but it has been successful, in Europe, where the concept of IKEA is effective, without necessary adaptation. But, in the United-States, IKEA had to struggle in the early years and made several changes to its retailing formula to adapt to US requirements. On the other hand, a different scenario can be Wal-Mart. When Wal-Mart first expands in Mexico they ran into many cultural problems. For example, they found that the Mexicans prefer to buy fresh produce at the local stores. They also found out that many Mexicans do not have cars which cannot buy in large volumes as in the United States. However, Wal-Mart did not give up and developed strategies to meet the local conditions. For example, they hired local managers who understood Mexican culture, building smaller stores that people could walk to and offering more fresh produce and low prices. Their strategy did pay off, Mexicans started to change their shopping habits and Wal-Mart became one of the largest retailers in Mexico. Wal-Mart also discovered that they can expand into China as they found out that the Chinese were bargain hunters and open to the low price strategy and the wide selection of products offered by Wal-Mart. However, to succeed in China, Wal-Mart also found it had to adapt its merchandising and operations strategy so it can engage with the Chinese culture. For example, Wal-Mart has learned that Chinese consumers insist that food must be freshly harvested or even killed in front of them. Some Chinese consumers were offended when Wal-Mart was trying to sell them dead fish. So Wal-Mart began to display the meat uncovered, installed fish tanks into which shoppers could plunge fishing nets to pull out their evening meal and began selling live turtles for turtle soup. The Wal-Mart scenario proves that culture can have a big effect on the business strategy. For example, in the case of McDonalds; meat prepared after halal is printed on the label before exporting meat to Saudi Arabia or as we seen above, McDonalds created the The Maharaja Mac which is made from mutton for the Hindus. Also, Coca Cola had labeled on bottles supplied to the gulf to contain non-alcohol or in the case of Nokia when introduced Hindi SMS for Indians users of mobile phones etcà ¢Ã¢â€š ¬Ã‚ ¦ CONCLUSION Culture is important for many aspects of business life especially when a business must interface with people, either as customers, employees, suppliers or stakeholders (Aswathappa, K 2008, p. 78). Deal and Kennedy (1982) argue that culture is the single most important factor accounting for success or failure in business. Goffee and Jones (1998) argue that no business strategy or programme can or will succeed without the appropriate culture in place. Mullins (1999) suggest that culture helps to explain why different groups of people perceive things in their own way and perform things differently from other groups. He also suggests that there is nothing accidental about cultural strengths, there is a relationship between culture and the business performance. When it comes to analysing a countys culture, Hofstade module of cultural dimensions can be a very useful tool as there is no current discussion on culture in a business context is complete without reference to Hofstede. On the other hand, Disney, McDonalds, IKEA and Wal-Mart are evidence to support the argument that in which the impact of culture in international business is very important. Personally, I never claim that culture is the only thing we should pay attention to. In many practical cases it is the economic or political factors provide better explanations but sometimes they dont and then we have to go back and look for answers throughout history and culture. I also believe that too often people emphasize the differences rather than the similarities in cultures and view these differences as threatening and negative rather than as opportunities for creative solutions. It is an easy trap to fall into. What we need to remember is that anyone can cope successfully with cross cultural relationships with the proper mindset. All we need to have is to change our mental computer disk and reprogram ourselves.